AF: We can’t lower alt-fuel costs on our own

AF: We can’t lower alt-fuel costs on our own

The military services love to tell you about how much they love alternative fuel, and no wonder: In theory, it’s the answer to their prayers. If you can get a magical substance that burns in the engines and equipment you already have, which insulates you from the strategic and price uncertainty of petroleum, and which buys you enviro-cred with all the green types, it could be a revolution for the 21st century military. The good news is that such fuels appear close at hand. The bad news is they’re hideously expensive.

As the Army and Air Force collaborate this week on a joint conference about alternative energy, one of the biggest question marks is how the military can get alternative fuels to the point where they’re at least competitive with what the services pay now for old-fashioned petroleum products. A top Air Force officials said this week that the service recently paid about $35 per gallon for a batch of alternative fuel, which includes part of the cost of developing it. That’s no good multiplied by all the fighters and bombers and cargo planes and UAVs; the key to realizing all the benefits of alternative fuel is for it to be much cheaper. It doesn’t need to be as cheap, or cheaper than, today’s JP-8 — in fact, service officials would probably be happy with an slightly more expensive fuel if they knew its price would keep steady, safe from sudden spikes.

But for all the millions of gallons the Air Force burns today, it still isn’t big enough a customer to force down the costs of alternatives, said Kevin Geiss, the deputy assistant secretary of the Air Force for energy. He told bloggers on a conference call Wednesday that the Blue Suiters account for only about a tenth of the aviation fuel market in the United States; if and when the commercial and civil aviation worlds show serious interest in using alternative fuels, that will make the biggest difference.

“What it would take to get the price of fuel down to parity is mostly elements that are outside the span of control of the Air Force,” he said. Plus: “There’s still work that needs to be done to identify a sustainable industry, to get the industry to the point where they can provide the volumes of fuel, because volume is a significant factor  in getting down commodity price. The prices we’re paying for test and evaluation are in volumes of tens of  thousands of gallons, not millions of gallons … We need to understand that any given day, of all the aviation fuel consumed in the U.S., 10 percent is military. Ninety percent in the U.S. is commercial aviation.”

Geiss said the Air Force is trying to entice the commercial aviation world into coming around to its viewpoint on alternative fuels. He said there has been some success already internationally, citing the German carrier Lufthansa’s experiment with flying a regular route on a 50–50 synthetic blend. The Air Force wants everybody else to jump in the pool, despite today’s high costs, and make the business prospects too appealing for the fledgling alternative fuel industry to resist.

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I wonder if DoD has explored fuel hedging strategies using futures contracts, like Southwest Airlines does.

The Airline industry is waiting for the volume production of the alternative fuels to be increased after their approval by ASTM. (ASTM-D-7566) Several US operators have singed MOUs with alternative fuel production companies. The alternative fuels world should help the approval of the FAME approval to 100ppm with a rapid or on line testing capability in order for the fuels distribution system to start working. We need to ensure the alternative fuel’s specification and quality throughout the US distribution system. The USAF as well US airlines, pipelines, oil companies, etc are well aware of the current jet fuel distribution limitations due to the age of the distribution system as well the lack of tankage capacity at holding stations and the lack of qualify jet fuel laboratory availability at several airports. I believe the US Government should step in and provide incentives to eliminate the jet fuel distribution limitations before full alternative jet fuel distribution via pipelines is started. A good jet fuel distribution system that will ensure specification, quality and safety will drive the overall cost of the alternate fuels down to at least similar values with today’s JP-8 price.

@Engineer Economist — The DoD has indeed explored fuel hedging (see–2004.pd… as an example) but to date, has never moved forward with it.


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